Femi Oyetunji
THE insurance companies in Nigeria and Africa have not been performing well enough when compared to their counterparts in the global space, what is the reason?
Capitalization has been the major problem in Africa that affects insurance and reinsurance companies and has contributed to why they cannot get big ticket transactions. The insurance companies need continuous recapitalization to meet demands from major sectors that are highly capitalized.
Insurance sector in Nigeria is faced with the same issues like most other countries. We need well and highly capitalised companies. Personally, this is the same sentiment I expressed in 2005 and 2006.
It is time for insurance companies in Nigeria to consider merging with one another to build big institutions that will compete globally. We must merge and build big institutions else, the insurance companies outside Nigeria will be picking up our businesses.
There is this fear from stakeholders that part of your plans for restructuring is to leave the Nigerian market?
There is no need to fear. We are here to stay as Nigeria accounts for 40 percent of our operations. Part of the restructuring plan is to enhance stakeholders’ value.
Stakeholders’ value
For the management team and the board, it is important for us to do things that would get us an enhanced rating. Such effort means bringing and retaining more capital, writing profitable business to be able to retain more capital.
Nigeria is 40 percent of our businesses across Africa. It is the most significant, it is the second largest insurance market in Africa, and our focus is strictly Africa. Our interest in Africa is a permanent interest and not a long term interest. Nigeria continues and will always be the largest element. We would be commissioning our new head office in Lagos by first quarter of 2019.
Our focus and amount of capital to be dedicated to Nigeria will only continue to increase. We are not exiting, because we want to write more businesses in Nigeria.
So are you in support of NAICOM moves for insurance companies to recapitalize?
Of course, insurance companies do not need to wait for the regulator to ask them to recapitalize. For Continental Reinsurance, we started some 30 years ago as a local Nigerian company. In 2006, we were able to recapitalise by injecting capital from a private equity called Emerging Capital Partners (ECP) from Washington, USA.
Thankfully, 2006/2007 saw the transformation of Continental Re in terms of governance and process thanks to the ECP. I joined the company in 2011 and what I saw then was that we were a multinational company although we were seeing ourselves as a Nigerian local company.
However, we took a decision that there was need to close the gap in capital market across the continent and we felt strongly that Continental Re should fill that gap to create a strategy because we have a vision to be a premier insurance company.
Why do you need higher rating?
If you follow the rating agencies, the rating is directly or indirectly limited by your domicile head office. I used the word domicile because there are a lot of misconceptions in what we are trying to do.
Because of some of the things we have put in place, in 2012, we were upgraded to B+. In Africa, we have one company that is ‘A’, we have two that are B++ and we are B+.
In terms of what we could do internally, in terms enterprise risk management and the quality of underwriting process, we have gone two notches above the re-sovereign rating of Nigeria and we cannot go higher.
We cannot achieve what we want to do with the capital in Nigeria, even if we increase our capital to $500 million, it will not get us to where we are going.
What we have done, as it also works for international ratings agencies and consultants, is to look for an environment with higher ratings that will assist us to get to where we are going. After a careful selection and in terms of simplicity, we choose to set up a holding company in Mauritius.
Why are you embarking on restructuring?
We have been on this process for over a year. We have to go to NAICOM and the Nigerian Stock Exchange , NSE to explain our intentions. However, before we can transfer the shares from here to there, we have to do our valuations of the company.
As a company, we did our internal valuation, our auditors, PWC did their valuation; we brought in Ernst and Young as the Accountants after which we engaged in an independent company, Coronation Merchant Bank to also do their own valuation. It was not that we decided on a number, we went through the process and at every stage; we consulted the board to get the necessary approval. The valuation we came up with from the various consultants range between N1.80 and N2.00 but Coronation Bank came up with N2.04. We took it to the board and we got the approval, so it was not what we fixed by ourselves.
On daily basis, we were reporting to the Stock Exchange because of the sensitivity of what we were doing. Everyone involved in the process signed a non-disclosure agreement not to discuss the matter until we got the necessary approval.
Shareholders kicked against the pricing, stressing that they were short changed. What is your take?
After we got the approval, we called a meeting of selected shareholders who are opinion leaders to explain to their members about 30-50 of them to explain what we are doing because one may read a document without understanding the spirit behind it. It was not an easy conversation but we tried to explain our intentions. We made them understand that we are as passionate as they are. Invariably, it gets to agitation about the reduced cost as against the cost at which they bought the shares. We explained that the drop in share prices, which affected everyone, affected us all.
At the same time, the economy is no longer the same, the market no longer the same and the exchange rates are no longer the same. However, we promised to review the price offered in the scheme and get back to the shareholders. It took a lot to push it to N2.10. We had a meeting with the shareholders leaders and we expect they would have communicated with their members. At the court ordered meeting, everything was done by poll, 92.66% percent of those eligible to vote, representing, 1, 158, 582, 972 shares voted for and the 7.84% representing 91,801,465 shares voted against. Everything has been signed and delivered to the stock exchange.
The shareholders also protested against the company plans to delist from the NSE. What is your take?
Let me emphasize that from the ongoing Scheme of Arrangement, we have no interest about delisting or not delisting. With the consequence of what we have done and because we could not take everybody or individuals to Mauritius, we now have only two or three shareholders and one of the shareholders being the nominee vehicle.
Generally, the number of our shareholders should not be different if they elect to stay in the nominee vehicle. However, in terms of individual entities, the advisers would follow up with the Stock Exchange on that.
Court Ordered meeting
The next step is for us to submit the document and the result of the Court Ordered meeting to Securities and Exchange Commission (SEC) and once we get SEC’s final approval, we will go back to court to register it.
Why the choice of Mauritius for capital mobilisation
The name of the company is CRe African Mauritius Investment, which is a holding company. It is a company incorporated in the Republic of Mauritius as a private company limited by shares and duly registered and licensed by the Financial Services Commission, which holds 65.20 per cent of the issues. If you look at the prospectus, you will see the final structure we intend to operate.
The subsidiary companies will each have a license and be registered locally. CRe Nigeria, which is the license we have now will continue to operate in Nigeria, pays taxes in Nigeria, employs staff in Nigeria and does business in Nigeria. It is not about tax incentives. The capital we require is not a fixed amount.
What is done globally now is that the regulators use risk-based capital supervision and that means if I am writing just motor insurance, I do not need the same capital with somebody writing aviation. Reinsurance companies do not wait for regulators to determine the amount of capital they need. You need to be continuously building up your capital. The more the companies write, the more successful they are, and the more capital they need. Our capital requirement can be from $50million to $100million based on the kind of business you want to do.
